Winning in Mexico! - The HEINEKEN Company

HEINEKEN FINANCIAL
MARKETS CONFERENCE 2013
MEXICO CITY
Winning in Mexico!
MARC BUSAIN
Managing Director, Cuauhtémoc Moctezuma
Mexico City | December 5-6, 2013 | Heineken NV
AGENDA
Winning
in Mexico!
2

A SUCCESSFUL ACQUISITION

OVERVIEW OF MEXICAN BEER MARKET

OUR STRATEGY TO WIN
CUAUHTÉMOC MOCTEZUMA: A RICH
HISTORY IN MEXICO
Serving consumer
inspired brands
for over 120 years
SCYF
1918
Foundation of Sociedad
Cuauhtémoc y Famosa, the
pioneer institution for
Mexican Social Security
Institution preceded Mexico’s
IMSS and INFONAVIT
1890
1910
1920
FOUNDATION
1890
Foundation of Ice Factory
and Cerveza Cuauhtémoc
Monterrey, N.L.”
Introduction of Carta
Blanca to the national
market
3
1940
EMPAQUE
TEC DE
MONTERREY
1943
Leading University
in Latin America is
founded by Don
Eugenio Garza Sada
1950
1920
CM creates “Fábricas de
Monterrey” to have its own
supplier of packaging materials,
cans and bottles
EXPORTS
1973
Exported to the
USA since 1973
1970
TECATE
TECATE
LIGHT
1954
Cervecería
Cuauhtémoc acquires
Cervecería Tecate in
Baja California
1980
1992
Cuauhtémoc Moctezuma
launches Tecate Light, the
first light beer in Mexico
1990
2010
MOCTEZUMA
1985
Cervecería Cuauhtémoc
acquires Cervecería
Moctezuma
HEINEKEN
2010
HEINEKEN
acquires FEMSA
Cerveza
Heineken®
launch in the
Mexican market
SUCCESSFUL INTEGRATION
PROCESS
Seamless integration of
FEMSA Cerveza into
HEINEKEN in 2010 whilst
driving ongoing business
growth
4

CULTURAL AWARENESS AS A
CRITICAL SUCCESS FACTOR

IMPLEMENTED NEW RTM
STRUCTURE

Heineken® LOCAL PRODUCTION

STRONG INVESTMENT BEHIND
BRANDS

ROLL-OUT OF CM’S ‘SIX’ BEER
ORIENTED RETAIL STORES
INTEGRATION
PROCESS PLAN
STRONG DELIVERY
OF COST SYNERGIES
Expected cumulative
cost savings of €320m
by end 2016

~€220M OF COST SYNERGIES TO
BE GENERATED BY END 2013

ACHIEVED SAVINGS PRIMARILY
FROM SUPPLY CHAIN AND ROUTE
TO MARKET RECONFIGURATION

CONTRIBUTING ~20% OF HEINEKEN
TCM2 GLOBAL SAVINGS IN 1H13

FURTHER OPTIMISING COST BASE:



5
~€100M ADDITIONAL COST SAVINGS IDENTIFIED
EXPECT TO REALISE APPROX. HALF IN 2014 (PART OF
PREVIOUSLY ANNOUNCED TCM2 TARGETED SAVINGS)
BALANCE OF SAVINGS IN 2015 AND 2016
COST SYNERGY
PROGRESSION
€ MILLION
320
100
220
58
57
72
33
CM DELIVERING IMPRESSIVE
TOP-LINE AND PROFIT GROWTH
Operating profit
(beia) margin
expansion of 520
basis points since
2010
REVENUE1
2010-2013F
€M
CAGR
OPERATING PROFIT
(BEIA)1 2010-2013F
€M
CAGR
+6%
+21%
OPERATING PROFIT
(BEIA) MARGIN2
2010-2013F
€M
18.1%
12.9%
2010
6
1 Includes domestic beer operations only
2 Includes domestic beer and export operations
2013F
2010
2013F
2010
2013F
MEXICO IS HEINEKEN’S
LARGEST MARKET
HEINEKEN GROUP
BEER VOLUME1 (2012)
Mexico
14%
7
HEINEKEN GROUP
REVENUE1 (2012)
Mexico
11%
1 Group beer volume and financials based on is consolidated business plus attributable share of joint ventures and associates;
2 Group operating profit (beia) excludes Head Office; Based on 2012FY proforma (including APB from 1 January 2012)
Mexico includes both domestic and export operations
HEINEKEN GROUP
OPERATING PROFIT
(BEIA)1,2 (2012)
Mexico
11%
CUAUHTÉMOC MOCTEZUMA
ORGANIZATION
Local management
team structure
1 MARKETING
LEANDRO
BERRONE
2 SALES
JOSEP
FERRER
CEO
MARC
BUSAIN
8

18,000 EMPLOYEES

5 EXPATS

10 NATIONALITIES

30 MEXICANS
EXPATRIATED
4 SUPPLY
CHAIN
JORGE
MEILLÓN
7 GLOBAL
INFORMATION
SERVICES
CICERO
WILLIS
5
HUMAN
RESOURCES
JAVIER
CASTAÑO
8 FINANCE
MARC
GOUMANS
3 LOGISTICS
AND CUSTOMER
SERVICE
FRANCISCO
GARZA
6 CORPORATE
AFFAIRS
ARNULFO
TREVIÑO
AGENDA
Winning
in Mexico!
9

A SUCCESSFUL ACQUISITION

OVERVIEW OF MEXICAN BEER MARKET

OUR STRATEGY TO WIN
WELCOME TO MÉXICO!
Attractive growth
prospects
for HEINEKEN
10

POPULATION: 115 MILLION

POSITIVE ECONOMIC OUTLOOK

GROWING MIDDLE CLASS

4TH LARGEST BEER PROFIT POOL

+1 MILLION NEW CONSUMERS PER YEAR

#1 BEER EXPORTER IN THE WORLD
A POSITIVE ECONOMIC OUTLOOK
An acceleration
in economic growth
in Mexico to be
underpinned by
structural reforms
MEXICO
GDP
GROWTH
4.7%
3.9% 3.9%
4.9%
5.2% 5.3%
FORMAL
EMPLOYMENT
GROWTH
‘000 Number of new employees
868
911
779
699
3.5%
883
639
591
393
0.9%
2011 2012 2013F 2014F 2015F 2016F 2017F 2018F
11
Source: Harbor International
2011 2012 2013F 2014F 2015F 2016F 2017F 2018F
DYNAMIC DEMOGRAPHICS
By 2017, Mexico will
have >7 million new
consumers of
legal drinking age
POPULATION
+18 AND BEER
CONSUMPTION
65
52
2004
70
67
59
58
2008
2010
56
2006
73
Population +18 (LDA) (Millions)
12
Source: Canadean and CONAPO
POPULATION
PYRAMID
83
76
60
Millions by age bracket
MALE
63
0.1
0.6
1.5
2.8
4.7
6.8
8.2
9.6
11.3
11.4
2012 2017F
Per Capita (Liters)
Source: CONAPO, 2012
90+
80-89
70-79
60-69
50-59
40-49
30-39
20-29
10-19
0-9
FEMALE
0.1
0.7
1.7
3.2
5.2
7.5
9.2
10.2
11.0
10.9
RISING URBANIZATION & AN
EMERGING MIDDLE CLASS
TIJUANA
Demographic
and Economic
changes signal
opportunities
to develop
the premium
segment

2m population

MONTERREY

4m population

Urbanization
level
90-100%
80-90%
60-80%
50-60%
30-50%
PUEBLA
GUADALAJARA
4.5m population
MEXICO CITY
20m population
13
Source: INEGI
3m population
MEXICO CITY IS THE SECOND
LARGEST CITY IN THE WESTERN
HEMISPHERE
11 CITIES WITH >1 MILLION
PEOPLE
86% URBANIZATION LEVEL
EXPECTED BY 2020 (VS. 61% IN
1980)
PURCHASING POWER AND
CONSUMPTION OF MIDDLE
CLASS HAS BEEN INCREASING
OVER THE LAST 10 YEARS
BEER IS THE ALCOHOLIC BEVERAGE OF
CHOICE IN MEXICO
Beer represents17%
of total beverage
consumption and 94%
of alcoholic beverage
consumption in Mexico
TOTAL BEVERAGE
CONSUMPTION
DISTRIBUTION
ALCOHOLIC
BEVERAGES
DISTRIBUTION
2013F
2013F
Nonalcoholic
9%
Beer
Spirits
Flavoured alcoholic beverages
3% 2% 1%
Alcoholic
18%
Carbonates
58%
Water 15%
94%
14
Source: Canadean
Wines & cider
ATTRACTIVE GROWTH PROSPECTS FOR
MEXICAN BEER
Mexican beer market
projected to grow at
an annualized rate of
2.6% through to 2020


€7.5BN BEER INDUSTRY VALUE
60K DIRECT EMPLOYMENT

800K INDIRECT EMPLOYMENT

4% OF GOVERNMENT TAX INCOME

>20 MHL EXPORTED
BEER MARKET
PROJECTIONS
+2.6%
+2.5%
50
52
55
61
64
64
67
71
75
78
82
2000 2002 2004 2006 2008 2010 2012F 2014F 2016F 2018F 2020F
15
Source: Plato
AGENDA
Winning
in Mexico!
16

A SUCCESSFUL ACQUISITION

OVERVIEW OF MEXICAN BEER MARKET

OUR STRATEGY TO WIN
CM STRATEGY TO WIN
1 BUILDING
A WINNING
NATIONAL
PORTFOLIO
Capabilities
17
2 CONSOLIDATE OUR
SHARE IN STRONGHOLDS
WHILST ADVANCING IN
SELECTED CHALLENGER
MARKETS
Cost Leadership
Culture
3 LEVERAGE STRATEGIC
CHANNELS TO DRIVE
VOLUME AND VALUE
Sustainability
BUILDING A NATIONAL
WINNING PORTFOLIO
Consolidating
our mainstream
offering whilst
developing
premium




18
TECATE A LARGE AND GROWING
BRAND WITH CLEAR LEADERSHIP
IN LIGHT SEGMENT
IGNITING ADDITIONAL
SOURCES OF GROWTH THROUGH
DOS EQUIS AND INDIO
STRENGTHENING REGIONAL
MARKET POSITIONS THROUGH
INVESTMENTS IN CARTA
BLANCA AND SOL
LEADING THE DEVELOPMENT
OF THE PREMIUM SEGMENT
WITH Heineken®
SUPER PREMIUM
PREMIUM
ABOVE MAINSTREAM
MAINSTREAM
BELOW MAINSTREAM
ECONOMY
EXCITING POTENTIAL FOR PREMIUM
SEGMENT IN MEXICO
Developing
and winning
in the premium
segment




19
Source: Canadean
DOUBLED VOLUME IN SUPER PREMIUM
AND DOUBLE DIGIT GROWTH IN
ABOVE MAINSTREAM
STRONG INVESTMENT BEHIND
Heineken® DELIVERING SOLID
GROWTH FOR LONG TERM VALUE
% SHARE
OF UPSCALE
BEER
0
5
10 15 20 25 30 35 40
France
Italy
USA
PROMISING START TO
STRONGBOW GOLD
STRONG INNOVATION PIPELINE
FROM LOCAL / GLOBAL BRAND
INITIATIVES
Canada
Brazil
Mexico
India
A TARGETED REGIONAL
GROWTH STRATEGY
Growing our
market share in
stronghold
regions, whilst
advancing in key
challenger cities
MEXICO BEER
MARKET SHARE
CM MARKET SHARE
BY REGION
OTHERS
1%
>65%
35%-65%
<35%
41%
58%
20
Source: Canadean
GRUPO
MODELO
Source: Company Information
WINNING IN
CHALLENGER MARKETS
Sustainable market
share gains in
challenger markets
through a strong
brand portfolio,
quality penetration
and a passionate
team
CM CHALLENGER
MARKETS
STRONG
OUTPERFORMANCE IN
CHALLENGER MARKETS
Volume CAGR (2011-2013F)
+2.7x
6.2%
2.3%
Challenger Markets
Total Domestic
21
Challenger Markets
A SEGMENTED CHANNEL APPROACH
Leveraging
capabilities in
strategic channels
to drive volume
and value growth
CM CHANNEL SPLIT
(2012 VOLUME)
Develop quality
numerical distribution
in the traditional
off-trade
Win in mixed accounts
in the modern and
traditional off-trade
On Premise: Develop
premium and drive growth
in profitable sub-segments
22
Deliver growth and
value from CM’s
SIX beer oriented
retail stores
Capture market
share leveraging
OXXO expansion
footprint in CM
challenger markets
STRONG STRATEGIC
PARTNERSHIPS
Strategic alignment
with OXXO enabling
brand penetration
and growth as retail
chain expands
nationally
OXXO STORES GROWTH
(NO. OF OUTLETS)

BENEFITTING FROM OXXO
EXPANSION IN CHALLENGER
MARKETS

BUILDING BRANDS

DEVELOP PREMIUM SEGMENT

INCREASED OUTLET
PRODUCTIVITY
10,568
9,543
8,400
7,374
6,374
5,563
2007
23
2008
2009
2010
2011
2012
SIX: OUR BEER ORIENTED
RETAIL BUSINESS
Beer oriented stores
differentiated by
service and a fun
shopping environment
24
SIX

30-50 SQUARE METERS OFF-PREMISE OUTLETS

CM DETERMINES LOCATION AND FORMAT

BEER IS DESTINATION CATEGORY

LAND IS LEASED; ENTREPRENEURS MANAGE
THE STORE INCENTIVIZED BY COMMISSIONS
FOR BEER AND OTHER KEY CATEGORIES

TYPICAL CONSUMER - MALE 35-45 YEARS OLD;
MONTHLY INCOME OF US$500
SIX IS A HIGHLY PROFITABLE
RETAIL BUSINESS MODEL
SIX: NUMBER
OF OUTLETS
10,225
25
2011
A UNIQUE PLATFORM
TO DEVELOP THE BEER
CATEGORY

25% OF OUTLETS ARE LOCATED
IN CENTER AND WEST MEXICO

IN 2013, OTHER KEY
CATEGORIES ALSO
CONTRIBUTED TO INCREASED
PROFITABILITY
11,289
9,289 9,270
2010

2012 2013F
FEDERAL TRADE COMMISSION
AGREEMENTS
We are committed
to full compliance
of the resolution
KEY
COMMITMENTS
1 Open exclusive on-premise accounts
to local microbrewers

Written agreements in on- or off-premise
clients for exclusive sale of beer
2 Use a new format of exclusivity agreements
for traditional channel and restaurants

Most of the time through a pre-payment of
the expected margin to be earned by the
client

Not all exclusive arrangements are in writing
or imply an exchange of money

High transactional costs sometimes create
incentives for clients to carry brands from only
one beer company without a formal
agreement
3 Allow exclusive clients without a
written agreement in traditional channel
to sell other beer brands
4 Limit exclusivity agreements to 25% of
our total client base (with a 1% reduction
per year until reaching 20%)
26
HOW CUSTOMER
AGREEMENTS WORK
BEST IN CLASS
SUPPLY CHAIN
World Class
Brewery Footprint
MANUFACTURING
FOOTPRINT
PRODUCTIVITY
IMPROVEMENT OF
42% SINCE 2010
TECATE
(hl/fte)
15,000
NAVOJOA
MONTERREY
+42%
10,545
ORIZABA
GUADALAJARA
TOLUCA
2010
27
2013F
IMPROVEMENT ACROSS KEY
PERFORMANCE INDICATORS
Excellence in Supply
Chain management
delivering value
OPI1
PACKAGING
(%)
76
1
(Hl of water /hl produced)
3.73
THERMAL ENERGY
CONSUMPTION
(Mj/ hl produced)
84
+4.3%
-4.8%
-10.7%
72.9
3.55
75
2010
28
WATER
CONSUMPTION
OPI = Overall Performance Indicator
2013F
2010
2013F
2010
2013F
SUSTAINABILITY
AGENDA
On our way
to becoming
Mexico’s
most admired
company

COMMUNITY

ENVIRONMENT



Educational
Programs and
partnership
for progress
(music, schools,
gyms) impacting
over 1.5 million
people

Source water
Protection
CO2
EMISSIONS
RESPONSIBLE
CONSUMPTION

8% reduction
in CO2 emissions
through:


Green innovation
on distribution
Designated
Driver positively
impacting over
90,000 people

Responsible
Waiter training
program for over
7,500 people

29
Local supplier
programs benefiting
>13,500 suppliers

Water stewardship

2020 target
to achieve first
Water Neutral
Brewery

Energy savings from
fridges across
all clients

Eco packs

Green Production
PEOPLE AND CULTURE
Winning through
people in a high
performance
organization
30

CULTURE
ALIGNING OUR ORGANIZATION TO BUSINESS
PRIORITIES

MARKET FOCUS
HEAD-OFFICE AND SALES PROGRAMS

A GREAT PLACE TO WORK
TOP TIER CLIMATE SURVEY RESULTS
IN ALL OF HEINEKEN

GLOBAL TALENT DEVELOPMENT
30 MEXICAN EMPLOYEES WORKING ABROAD

REWARD AND RECOGNITION
21% OF OUR MANAGERS HAVE BEEN
PROMOTED IN THE LAST 3 YEARS
SUMMARY
Key Takeaways
31

GROWTH IN MEXICAN ECONOMY AND POSITIVE SOCIODEMOGRAPHIC TRENDS
TO UNDERPIN BEER MARKET GROWTH

CM IS DRIVING SIGNIFICANT PROFIT AND MARGIN GROWTH WITH FURTHER
UPSIDE POTENTIAL

A CLEAR BRAND PORTFOLIO STRATEGY FOCUSED ON CONSOLIDATING
MAINSTREAM WHILST DEVELOPING PREMIUM FOR THE LONG TERM

WINNING SHARE IN CHALLENGER MARKETS THROUGH A TARGETED CHANNEL
STRATEGY APPROACH

LONG TERM COMMITMENT TOWARDS THE MEXICAN COMMUNITY

ATTRACTING AND DEVELOPING A GLOBAL TALENT BASE